UAE CT Update: Ministerial Decision on Small Business Relief

The Ministry of Finance has issued Ministerial Decision No. 73 of 2023 on Small Business Relief for the purposes of Federal Decree-Law No. 47 of 2022 on the “Taxation of Corporations and Businesses” (the Corporate Tax Law).

Who is eligible for the Small Business Relief?

• As per the said Ministerial decision, any Taxable Person’s#(being a Resident Person) having revenue for the relevant Tax Period and previous Tax Periods##below AED 3 million can claim Small Business Relief envisaged in Article 21 of the Corporate Tax Law. Revenue shall be determined based on the applicable accounting standards accepted in the UAE.
• The Relief has been announced with a sunset clause i.e. the revenue threshold needs to be checked for the tax periods commencing on or after 1 June 2023 and shall continue to apply to only subsequent Tax Periods that end before or on 31 December 2026.
• Where the Revenue for any Taxable Person exceeds the threshold of AED 3 Million in any relevant or previous Tax Period, the above-mentioned Relief would not be available.
• The Federal Tax Authority (FTA) is empowered to verify the compliance of Article 21 and may request any relevant information or records from the Taxable Person within the timelines to be prescribed.

Is the Small Business Relief Automatic?

• The Small Business Relief is not automatic, however, the Taxable person eligible for this Relief would need to elect for application of this Relief and shall have to comply with all other prescribed conditions.

What is the Small Business Relief?

• Upon the election of the above relief and upon fulfillment of the conditions, a Taxable Person shall be treated as not having derived any Taxable Income for the subject Tax Period.

Who are not eligible for the Small Business Relief?

• A qualifying Free Zone Person; and
• A Constituent Company of a Multinational Enterprises Group (MNE Groups) as defined in Cabinet Decision No. 44 of 2020. MNE Groups are groups of companies with operations in more than one country that have consolidated group revenues of more than AED 3.15 Billion.

Implications of Electing the Small Business Relief

      A:-Losses

• Any Tax Losses incurred in such Tax Periods cannot be carried forward to any subsequent Tax Periods.
• Any unutilized Tax Losses incurred in previous Tax Periods where an election to apply the Small Business Relief was not made, may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made.

      B:-Net Interest Expenditure

• Where an election to apply the Small Business Relief is made in a Tax Period, any Net Interest Expenditure incurred in such Tax Period cannot be carried forward to any subsequent Tax Periods.
• Any Net Interest Expenditure incurred in previous Tax Periods where an election to apply the Small Business Relief was not made may be carried forward to subsequent Tax Periods in which an election to apply the Small Business Relief is not made.

     C:- Others

• Where an election to apply the Small Business Relief is made in a Tax Period, a Taxable person is not entitled to claim the benefit of deductions under Chapter Nine and enjoy reliefs under Chapter Eight of the Corporate Tax Law.
• Similarly, the Taxable person shall not be able to enjoy exemptions for the calculation of taxable income as contained in Chapter Seven of the Corporate Tax Law.
• The Taxable person entitled to the Small Business Relief is also not required to file Transfer Pricing Documentation for transactions with its Related Parties and Connected Persons.

The Ministerial Decision also mentions that any artificial separation of Business or business activity to meet the AED 3 Million threshold and to take advantage of the Small Business Relief, would be considered an arrangement to obtain a Corporate Tax advantage under the General Anti-Abuse provisions of the Corporate Tax Law. The FTA may make a determination that any such corporate tax advantage obtained is to be counteracted or adjusted.

The above Decision is a welcoming step from the Ministry of Finance to support start-ups and other small or micro businesses by reducing their corporate tax burden and compliance costs. It, however, remains important to evaluate whether Taxable Persons who are eligible for such Small Business Relief would be still required to undertake a Tax Registration and file a Corporate Tax Return or not.

#Taxable Person: A person subject to Corporate Tax under Corporate Tax Law. ##Tax Period: The period for which a tax return is required to be filed.

Also Check:- Corporate Tax in UAE